26(f) Plan Freedom Checks Are Better than Social Security-Mostly Fiction!
Summary of eRumor:
Online wealth management service providers have touted “freedom checks” that are issued under what are known as 26(f) plans as “better than Social Security” and a way to get rich quick.
“Freedom checks” are more of a marketing stunt than a way to get rich quick. It’s a flashy new term that’s being tied to a form of reinvestment plans for whole life insurance dividends, which are more commonly called 26(f) plans.
Many claims about 26(f) plans and freedom checks have been made over the years. People have been urged to hurry and sign up for one before the government closes a loophole. They’ve been told that investing a very small amount in a 26(f) plan will pay out big dividends (or freedom checks). And 26(f) plans have also been touted as being “better than Social Security.”
In reality, 26(f) plans are not new. Nor does the government have plans to close 26(f) plan loopholes anytime in the near future. These claims have primarily been made by individuals who are trying to get people to pay for subscriptions for online investment services or newsletters. People are promised all the answers that they’ll need about freedom checks and 26(f) plans — after they pay a fee.
The bottom line is that 26(f) plans and other dividend reinvestment plans are real, and they might be an excellent way for you to build wealth over time. But they shouldn’t be viewed as a get-rich-quick option, and you should be wary of any wealth managers who make claims that sound too good to be true. For that reason, we’re calling claims about freedom checks “mostly fiction.”
What Are 26(f) Plans?
First, it’s important to understand how whole life insurance policies work. They’re more expensive than term life insurance policies, but they policyholders a number of benefits. They can include a death benefit, steady premiums — and dividends paid to the shareholder to offset the cost of the policy over time. These dividends account for a percentage of the insurance company’s profits. For example, a policy worth $50,000 that offers a 3 percent dividend will pay out $1,500 per year to the policyholder, Investopedia reports.
26(f) plans — which are a form of reinvestment plans (DRIP) — allow theses dividends to be automatically reinvested. Dividends are automatically reinvested back into the whole life insurance plan, allowing policyholders to accumulate more and more wealth over time, tax free. Other forms of DRIPs enable dividends to be reinvested into stocks through company plans or third-party brokers. Again, this allows investors to accumulate more and more wealth over time. The value of the shares will then rise and fall with the stock’s price.
It’s not clear where freedom checks fits into the equation. But it’s important to note that these aren’t new investment tools or “loopholes” — and that claims that you need to “act now” before the government ends them are untrue. Again, this is why we’re calling claims about freedom checks “mostly fiction.”